As Professor Barry Friedman and Dahlia Lithwick noted in a recent piece, the Roberts Supreme Court is usually pretty savvy about gauging public opinion and acting accordingly, but when they decided Citizens United, they grossly misread the mood of the American public. They must have thought that this would be a little-noticed change to campaign finance minutia. Instead headlines from all over the country howled about the invitation of corporate money into American elections. Unwittingly, Citizens United, roused a sleeping giant, the American investor.

Maybe it’s the backdrop of the Great Recession juxtaposed with another record year for Wall St., but for whatever reason, Citizens United hit a raw nerve. One of the reasons that this is such an objectionable decision is it allows corporate managers in publicly traded companies to spend what Justice Brandeis called “other people’s money.” And as the Brennan Center noted in Congressional testimony right after the decision was announced, this raises a host of corporate governance issues.

Citizens United allows unlimited corporate and union spending in local, state and federal elections. Now that the 2010 election is in full swing, we can see the jump in outside money. And when they know about corporate political spending, shareholders are objecting. For example, Target’s institutional investors wanted to know how $150,000 got into the Governor’s race in Minnesota. Meanwhile, investors such as the Nathan Cummings Foundation are objecting to spending from News Corp. and the Investor Network on Climate Risk is focusing on spending by oil companies.

But frustratingly, much of the money being spent in the midterm election is secret– masked through the use of tax-exempt non-profits like trade associations. This secretive corporate political spending leaves voters and shareholders equally in the dark about the source of the funds. And this study from Investor Responsibility Research Center shows how far we need to go, finding 86% of the S&P 500 does not have stated policies on indirect political spending via contributions to trade associations and non-profit interest groups.

If American shareholders track likely voters who object to the holding in Citizens United by a margin of 4-1, then a goodly portion of shareholders are probably also displeased with the right of corporate managers to spend corporate money in this way. With roughly one out of every two American households invested, that is a lot of potential anger about the use of corporate funds in elections.

More than in any election since Watergate, in the 2010 midterm election obfuscation is winning over transparency. This was not inevitable and it needs to be fixed before the 2012 presidential election. We can address this by getting serious about changing state corporate law and federal securities law.

As Professor John Coates has noted, Citizens United has radically unsettled the expectations of corporate managers, shareholders and creditors alike. And as Professor John Coffee has argued corporate spending through trade associations thwarts accountability to shareholders. Both professors agree that at the very least, we need more transparency surrounding corporate political spending.

But is this where we should end the discussion of corporate governance after Citizens United? I think not. Here the problem is not just that shareholders are unwittingly funding corporate political expenditures, it is that there is no mechanism under corporate law for them to register their consent or objection, short of selling their shares. As I have argued here and here, we need something akin to the British approach which allows shareholders a vote on political spending. And Professors Lucian Bebchuk and Robert Jackson contend, states can adopt even more stringent controls like requiring approval of political expenditures by independent directors or requiring super-majority shareholder votes to protect the interests of minority shareholders.

Legislation to address this problem is waiting in the wings. Both disclosure and a shareholder vote could be addressed by the Shareholder Protection Act (H.R. 4790). This bill would require shareholder approval before publicly-traded corporation can spend money on politics. Furthermore, corporations are required by the Act to report where they have spent the money. Congress can adopt this bill in the lame duck session after the election.

It is not too late to act to protect shareholders. We still have time to fix this problem before the 2012 election. Because once a presidential race is at stake, even the corporate managers who sat on the sidelines this time around, may find the new Citizens United authority to spend other people’s money in politics too irresistible to pass up.

Ciara Torres-Spelliscy is Counsel at the Brennan Center for Justice at NYU School of Law and Adjunct Professor of Constitutional Law at Rutgers University.

When do you know that ESG (or factoring environmental, social, and governance issues into investment and corporate decisions) has gone mainstream? One clue is this week's announcement that MSCI (Morgan Stanley Capital International) is acquiring ESG research conglomerate RiskMetrics (which gobbled up ESG pioneers KLD, Innovest, and Institutional Shareholder Services over the past three years). Another is the agenda of last week's meeting of the Securities and Exchange Commission's Investor Advisory Committee (IAC), which included items such as "ESG Disclosure Work Plan" and "Proxy Voting Transparency." So what does this mean?

The fact that an Investor Advisory Committee even exists – one of SEC Commissioner Mary Schapiro's first initiatives, to return to the "Commission's traditional role as the investor's advocate" (in the words of Committee sponsor, SEC Commissioner Luis Aguilar) – is testament to the success of the G part of the ESG equation: the SEC is governing itself more democratically. The Committee acts as the SEC's sounding board, rebounding guidance to the Commissioners on their regulatory agenda. The Committee's 18 members each represent a different constituency – with the AFL-CIO's Damon Silvers representing labor, and ProxyDemocracy Director Mark Latham representing individual investors, for example.

"Of course, the Commission doesn't have to act on anything the Committee recommends," IAC member Adam Kanzer of Domini Social Investments, who represents the ESG community of social investors, told me in an interview this week. But the very existence of the Committee establishes a mechanism for expressing the public mind – so the Commission would need a damn good reason to act against its recommendations.

The ESG equation squares the circle, reuniting the bifurcation the ol' Investor Responsibility Research Center (which got eaten up by Institutional Shareholder Services in 2005 established with its separate "social and environmental" and "governance" departments (no more having to track down either Meg Voorhes or Carol Bowie, as ESG creates a both/and.) Also, the ESG formulation has turned on its head the traditional perception of sustainability issues as time-wasting, extraneous concerns that drain on returns to potentially material risks and opportunities that investment trustees and corporate directors must factor into decision-making.

Kanzer and Stephen Davis of Yale's Millstein Center for Corporate Governance, chair of the Investor as Owner Subcommittee, outlined the workplan on ESG disclosure (according to meeting attendee Peter DeSimone of the Social Investment Forum, the socially responsible investing industry organization):

• In April, Subcommittee members will hold a meeting on the benefits of ESG disclosure to investors from a risk management perspective;
• In May, they will look at accounting standards and triggers for disclosure of contingent liabilities in the United States and other markets;
• In June, they will review reporting standards, including the Carbon Disclosure Project (CDP) and the Global Reporting Initiative (GRI), and look at information collected by the European Commission during its six meetings on ESG disclosure over the past year;
• In the summer, the Subcommittee plans to hold a public hearing on ESG disclosure to coincide with another meeting of the entire SEC.

The SEC Staff Interpretation released last month – the Commission Guidance Regarding Disclosure Related to Climate Change – set precedent on the E part of ESG disclosure. The guidance does not introduce new rules, but rather clarifies existing rules requiring companies to disclose material risks related to climate change, such as projected impacts of new legislation and international treaties capping carbon emissions.

Predictably, the move prompted opposition: House Financial Services Committee Ranking Member Spencer Bachus (R-AL) fired a letter to Chairman Schapiro voicing "very serious concerns" that the move represents the SEC trying to "promote a political agenda through regulation" and "will impose potentially significant compliance costs on issuers with little apparent benefit to investors." The preponderance of evidence and opinion debunking his concerns (think Stern Report and CDP) raises serious questions whether Bachus is promoting a political agenda through obstruction. Similarly, Senator John Barrasso (R-WY) introduced the Maintaining Agency Direction on Financial Fraud (or MADOFF) bill explicitly to "block" mandatory climate risk disclosure.

Bachus and Barrasso may be spitting into the wind. The corporate community generally understands and even encourages climate change regulation to create certainty and level the playing field through initiatives such as Business for Innovative Climate and Energy Policy (BICEP) and the US Climate Action Partnership (USCAP). Even recently-departed USCAP members BP, ConocoPhillips, and Caterpillar "have reiterated their belief that climate change is a real and serious issue, and that greenhouse gas emissions must be reduced," according to SustainAbility Vice President Jeff Erikson, who pointed to a ConocoPhillips press release re-stating support for federal climate change legislation. "The disagreement instead seems to be in the details of which industries will be most disadvantaged under legislation that USCAP supports," Erikson continued, before voicing disappointment at the three companies' decisions to leave USCAP.

Finally, the Investor Advisory Committee returned to the question of democracy in the wake of the recent Citizens United v. Federal Election Commission case, which considerably expanded corporate political contribution rights. The Investor as Owner Subcommittee voiced its intention to mirror its ESG disclosure proposal by proposing better disclosure or corporate political contribution limits.

The very existence of the Committee expands democratic mechanisms at the SEC, which allows and encourages the submission of public comments to the Committee - twenty five have come in as of this date.  Given the leverage opportunity the IAC represents, maintaining SEC momentum on ESG and corporate democratization may require more of a groundswell to demonstrate widespread public support for these measures – time to "sharpen your pencils."

Bill Baue is Executive Director of Sea Change Media, and Executive Producer/Host of Sea Change Radio, a nationally syndicated show with a global podcast audience. This article was first published on CSRWire.